Non-UK domiciliaries – proposed legislation that is to be included in a future Finance Bill

Certain proposals that were originally to be introduced on 6 April 2017 have not made it into the 2017 Finance Bill due to time constraints. However, the guidance published by HMRC on 21 March states these will be included in a future Finance Bill (very probably the second Finance Bill, due to be published after the autumn 2017 Budget).

There is unlikely to be any retrospective application to the changes when they are published but it is possible that the changes could be effective from the date of publication with little or no notice of when that will happen.

These provisions are as follows:

1. Capital distributions made to non-UK resident beneficiaries after 5 April 2017 were due to be disregarded for the purposes of assessing a UK resident beneficiary’s tax position taking into account the trust’s stockpiled gains. The delay in including this legislation in Finance Bill (No.1) 2017 allows further scope to ‘wash-out’ trust gains to non-residents after 5 April 2017 and before the changes are introduced in a later Bill.

2. Any income/benefit paid out of an offshore trust to a non-resident/remittance user beneficiary (other than close family members if the settlor is UK resident) which is then gifted to a UK resident individual within the following three tax years will be treated as a trust distribution for the UK resident. This is referred to as an ‘onward payment’. An ‘onward payment’ made as a part of arrangements to allow a UK resident individual to receive the trust distribution may be taxed even if the gift is made more than three tax years after the original trust distribution.

Although this is not in Finance Bill (No.1) 2017 there is an expectation that it will be introduced at a later date – the previous draft legislation looked to the date of the onward gift rather than the earlier distribution to the non-resident beneficiary from the trust so if a non-resident beneficiary wishes to make a gift to a UK resident, of a trust distribution made within the last three years, they should consider doing this in advance of the publication of the potential future Finance Bill in case the provisions are introduced with immediate effect. It should be noted that existing anti-avoidance legislation captures distributions made from trusts to a non-resident which is – at the time of payment – intended to be received by a UK resident beneficiary.

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